Promissory Note / Personal Loan Agreement

Promissory Note / Personal Loan Agreement: a practical guide

A promissory note records a borrower’s promise to repay money; a personal loan agreement can set out the loan terms for both sides. Either can help the lender and borrower keep a clear record of the amount, repayment plan, and other agreed terms.

What it's for

People use this document when one person lends money to another, or when a business lends money to an individual or another business. It can help both sides keep a clear record of what was agreed, including when the money will be provided and how it will be repaid.

A loan document works best when the parties can describe the arrangement in clear, specific terms. If the money is an investment in a business, a gift, or payment for services, a loan document may not fit; the parties should choose a document that reflects what they intend.

Who uses it

• Friends or family members making a personal loan
• An individual lending money to a small business
• A small business lending money to an owner or another business
• A borrower who wants the repayment plan recorded in writing
• A lender who wants a clear record of the debt and agreed payment terms

Terms to decide on

Loan amount and delivery

State the amount being lent and the currency. Record when and how the borrower will receive the money, and whether the full amount is provided at once or in parts.

Repayment plan

Set out when payments begin, how often they are due, and how much each payment will be. Say when the final payment is due, or describe how the balance will be calculated if payments vary.

Interest

Say whether interest applies, how it is calculated, and when it is due. If no interest is intended, state that clearly instead of leaving the point open to different interpretations; check local rules before agreeing to interest terms.

Payment method and allocation

Identify how the borrower should pay and where payments should be sent. Explain whether payments go first toward interest, fees, or the amount borrowed, if that matters to the arrangement.

Early repayment

State whether the borrower may repay some or all of the loan early and how any remaining interest or other amounts will be handled. Avoid relying on an informal conversation to settle this later.

Missed payments

Describe what the parties have agreed will happen if a payment is late or missed, including any agreed extra charge or revised schedule. Check local rules before including charges or consequences, because requirements can differ by place.

Security or guarantor

If another person promises to pay or property is offered as security, identify that person or property and describe the arrangement in clear terms. Do not assume that a mention in the note alone completes any separate steps that may be required locally.

Changes and additional terms

Explain how the parties will record an agreed change, such as a new payment date. Put any other important terms in writing, including in Additional Terms & Provisions if using the form.

Common mistakes

• Writing only the total amount and omitting the dates or amounts of scheduled payments.
• Leaving interest unstated, so the parties later disagree about whether it applies or how it is calculated.
• Using a repayment plan that does not match the borrower's expected cash flow or the lender's expectations.
• Failing to record when and how the borrower received the money.
• Assuming a guarantor or security arrangement is complete without clearly describing it or checking whether separate local steps apply.
• Making changes by text or conversation without keeping a clear written record that both sides accept.

Before you sign

• Check that the lender and borrower names match the people or businesses making the agreement.
• Confirm the amount, currency, and date the money will be provided.
• Read each payment amount and due date against the full repayment plan.
• Make sure the interest terms say exactly what both sides agreed.
• Check that any missed-payment, early-repayment, security, or guarantor terms reflect the parties' understanding.
• Review the full document together and correct unclear or incomplete wording.
• Check local rules on signatures, witnesses, notarization, registration, notice periods, and required wording where the document will be used; ask a qualified lawyer if a lot is at stake.
• Keep a copy signed by the borrower and records of the loan transfer and repayments.